Disassembling something that nobody owns

In voting for the dissolution of the San Diego Opera last month, the organization’s board was attempting something that’s all but impossible in a cultural nonprofit: acknowledging insolvency before actual insolvency. General Manager Ian Campbell called the vote an attempt to close ”with dignity and grace, making every effort to fulfill our financial obligations, rather than inevitably entering bankruptcy….” Other constituents disagreed.

I will not post an opinion about what the board or the organization should do. They have plenty of advisors — invited and uninvited — and lots of evidence to inform their choice (whether they used that evidence effectively is a current point of debate). But I am intrigued by the larger question: How can you gracefully disassemble something that nobody owns?

Nonprofits exist as a special class of organization that nobody owns. In the private sector, private owners (founders, investors, etc.) define the decision structure of a firm. In the public sector, the citizens collectively ”own” the assets of their government, and elect representatives to decide what to do with them. But nonprofit corporations are “non-stock,” meaning that neither the public nor private sector owns them.

The governing board, of course, is charged with stewardship of the organization and its assets. They represent not the public, but the ”public trust,” which is wildly open to interpretation. Some boards interpret their job as ensuring the success of the organization at all costs. Other boards interpret their job as ensuring the success of their mission, within the context of the many ways (inside and outside the organization) that mission might be fulfilled.

Essentially, the nonprofit organization offers an intentional disconnect between ownership and control. There are many good reasons to do this (which I’ll describe another time). But there are many consequences of this disconnect that we have not deeply explored.

For example, what do you do as a board when it seems likely that your continued commitment to the organization will do damage to the community? When you are faced with selling subscriptions or advance tickets (both of which are contracts) to performances you are not confident you can produce? When you are subject to long-term agreements that you doubt you can fulfill? When you are soliciting donations that may well drop down a hole?

I’ve written before about the evolving view of an organization as a ”nexus of contracts” rather than an individual entity. In the private sector, those contracts are bound through private ownership, and guided by economic and legal consequence. In the public sector, those contracts are bound through public process, and guided by the consequence of public elections (in both positive and negative ways).

In the nonprofit sector, as we’re seeing in San Diego, the board is caught between its public trust contract and its direct contractors (workers, funders, audience members, public agents), without clear insight about which is paramount, or whether they’re even different things. One of those groups can yell at them and litigate. The other party, the public trust (which, of course, includes the direct contractors), is amorphous, mysterious, and silent.

Comments

Of course this reminds me of the other notorious recent case of a non-profit organization owned by nobody and controlled by a board of directors that nobody else can bring to heel, let alone fire — the Minnesota Orchestra.

In that case, we had a board that was acting contrary to the loudly stated wishes – and, arguably, the interests – of virtually every stakeholder in the organization other than the board itself. A board that demonstrably lied to the state legislature about the organization’s financial condition.. A board that, for most of the lockout, at best pretended to negotiate. A board that, by locking out the musicians for (and beyond) the period that its concert hall was being renovated, was deliberately refusing to fulfill the organization’s stated mission — except that the board made a point of removing the word “orchestra” from the mission statement ahead of the lockout.

And none of the stakeholders who opposed the board’s actions could do a thing about it.

Andrew, I can’t remember if you wrote anything on the blog about the Minnesota Orchestra situation; do you have any observations about it?

We have been told that the average amount of donations, excepting funds for the hall’s renovations, fell short of the budget by six million dollars? If that’s not true, what do you feel the Board’s motivations were?

The “loudly stated wishes’ of the community, the Music Director and most importantly the musicians themselves was to pay the musicians more than the organization could afford. And this was to be accomplished by insulting the board members who are the very same persons who are expected to dig deeper into their pockets to fulfill these wishes.

If the board had been willing to prove what the organization could and couldn’t afford by opening up its books to review, the musicians would have been able and willing to make reasonable counteroffers.

And in light of the MOA’s demonstrated dishonesty to the state government and the public about its finances, there was every reason not to trust MOA management’s say-so about what it could afford.

I’d guess that no law exists that would force an unwilling board to open a non-profit’s books to any outsiders (other than the organization’s own paid auditor) except the IRS or a state tax authority during an audit.